Market Update – January 12th, 2024

Author:  Joe Maas, CIO SPG Advisors LLC

January 12th, 2024

Financial Markets
In the second week of 2024, equities rose slightly as spot Bitcoin ETFs made their entrance into the market, CPI data came in slightly hotter than expected, and another earnings season kicked off. As of close on Thursday, January 11th, the Nasdaq Composite rose +3.07%, the S&P 500 rose +1.77%, the Dow Jones Industrial Average rose +0.65%, and the Barclays Aggregate Bond Index rose +0.73% for the week.

Market News

Bitcoin ETFs. In a rather bumpy initiation to the SEC’s approval process for Bitcoin ETFs, on Tuesday, January 9th, the SEC’s official X page fell victim to a hacking incident, due to a lack of two-factor authentication. The hacker, seizing the opportunity, falsely declared the approval of all Bitcoin ETFs, causing the price of Bitcoin to spike, affecting BTC investors and speculators.

Shortly after, on Wednesday evening, the SEC did actually release their approval for the listing of 11 spot Bitcoin ETFs, however this does not include all Bitcoin ETFs as the hacker had posted. These ETFs began trading on Thursday, January 11th, with the objective of offering spot exposure to Bitcoin prices.

In theory, these ETFs should all provide similar exposure to the cryptocurrency, however they will vary in fees and liquidity. See below the wide range of fees from 0.2% up to 1.5%, with some sponsors even foregoing fees temporarily in an attempt to attract more investors. As these newly approved Bitcoin ETFs enter the market, there is much anticipation regarding the extent of their adoption into mainstream asset allocation portfolios. We look forward to continuing to monitor the evolution of investment instruments.

December CPI. Unfortunately, December’s CPI data surprised economists to the upside, following a few months of disinflation. The annual Headline CPI inflation rate clocked in at 3.4%, up from November’s 3.1%. On the other hand, the annualized Core CPI slightly declined from 4% in November to 3.9% in December. On a month-over-month basis, both Headline and Core CPI rose by 0.3% in December.

Source: BLS

Driving inflation higher, shelter costs saw a notable increase, rising by 6.2% from a year ago, although this does mark a decrease in the rate of inflation from last month’s data which showed 6.5% annual inflation in shelter costs. Transportation services experienced high inflation too, with a 9.7% rise compared to the previous year. Additionally, the cost of dining out, or “food away from home,” increased 5.2% from a year ago, demonstrating resilience of demand in that industry.

Conversely, elements driving the rate inflation lower included modest changes in new vehicle prices, which increased by only 1.0%, alongside used vehicle prices which declined in price by 1.3% compared to a year ago. Grocery prices, categorized as “food at home,” rose at a slower inflation rate of 1.3% from a year ago. This higher-than-expected inflation report is the final Consumer Price Index reading before the Federal Reserve’s February FOMC meeting, making it unlikely that they are ready to cut rates.

Source: BLS

December PPI. December’s Producer Price Index (PPI) report came in slightly below expectations, as the annual Headline Producer Price Index registered at 1.0% from a year ago, while the Core PPI rate posted at 2.5%, both showing slight increases from November’s annual inflation data. On a monthly basis, the overall PPI declined by 0.1%, while the Core PPI rose by 0.2%.

In the month of December, producers saw notable declines in certain costs, with food costs falling by 0.9% and energy costs dropping by 1.2%. Interestingly, the “other” services category was the only one to witness a rise in producer prices, with a 0.4% monthly increase. We are hopeful that lower inflationary pressures on producers will provide headway for other price indexes, like the CPI and PCE to show disinflation.

Consumer Credit. The latest data on consumer credit for November reveals a notable rise, with an overall increase of +5.7% in consumer credit outstanding compared to a year ago. The primary driver of this uptick is the significant jump in revolving credit (which largely includes credit cards, personal lines of credit, etc), which witnessed a staggering +17.7% increase compared to the same period a year ago. It’s important to note that these figures are not adjusted for inflation. However, even after subtracting the 3.1% Consumer Price Index, the annual increase in revolving credit stands at +14.6%, a substantial rise in credit activity.

In contrast, nonrevolving credit, which encompasses debt related to big ticket items such as vehicles, experienced a slower increase of +1.5% from the previous year. When adjusted for inflation, this figure actually shows a decline in nonrevolving credit, related to a variety of economic factors such as interest rate sensitivity. For example, those purchasing a $30,000 vehicle may be more likely to be interest rate sensitive than someone carelessly racking up credit card debt.

This month’s report of consumer credit demonstrates that consumers were not holding back their spending this holiday season, contributing to the notable boost in revolving credit usage. The upcoming months of credit data will offer insights into whether this surge in consumer credit translates into a potential slowdown in consumer spending.

Summary
This week, the SEC approved 11 spot Bitcoin ETFs, following months of anticipation and a hack on the SEC’s social media, X, account. December’s CPI surprised economists to the upside with a 3.4% annual Headline CPI and a 3.9% annualized Core CPI. December’s Producer Price Index showed a slight decrease, influenced by lower food and energy costs. November’s consumer credit data revealed a +5.7% increase, driven by a rise in revolving credit.

We appreciate your continued trust.

Thank you,

Joseph M. Maas,
CFA, CFP®, ChFC, CLU®, MSFS, CCIM, CVA, ABAR, CM&AA

We deeply appreciate the ability to monitor market conditions as we take tactical and strategic views on the economy in this interesting economic landscape. 

The information contained herein is general in nature. It does not take into account your particular investment objectives, financial situation, or needs. It is provided for illustrative or informational purposes only, and should not be construed as advice. Our advisors can meet with you to discuss your retirement plan.